Supposedly short interest hasn’t shrunk much. (from 140% to ~100%). Probably just Citadel getting out with their brokers they got to temporarily drag the price down with one-sided trade manipulation. Citadel makes money front-running trades up and down with volatility, so they win either way, and they forced huge spreads mid-week last week by preventing most retail orders and only allowing their own buy orders. Funny how Citadel gets to raise the collateral requirements (to block out retail brokers) when they also just purchased into the bankrupt Melvin. Of course there’s no relation, right?
It is interesting, I wonder how soon the actual squeeze and crash will be.
WSB claims that for the automatic-clearing ITM call options from last Friday the “other side” has until EOD Monday (next business day) to settle those share transfers. The brokers can’t have them lent out at that point, so the shorters have to obtain replacements so that they can return the shares. IDK if that’s an accurate assessment of the timeline. There are also a lot of long call options that are way ITM (having initially been far OTM) now that expire next Friday.
Don’t we want prices to crash to a reasonable level? I’d like to add some more AAPL at 13 PE.
My existing 1400 sh of AAPL are worth the exact same percentage of the company whether AAPL is trading at $150 or $40.
Is maintaining high leverage by hedge funds a good thing? I don’t personally see a problem with them having to exit other positions to cover their losses. Sure, their “investors” will all suffer unrealized losses. Yes, index funds, etc can also reduce in nominal value. But each “share” will remain owning the same percentage of the real companies, and the same share of future profits.
Even applying to individual “small” investors, any using margin should be fully responsible for the risks they’ve taken on, if they blow up their accounts that’s fine with me. (And I’m saying that as someone who has also personally almost blown up my own account before…)
IMO, the K-shape “recovery” this past 6 months has shown the market is completely decoupled from the real economy and the real situation of the population.
Seems to me the people are are going to get really screwed from this are the amateur investors who have a Robinhood account and buy GME today or yesterday or tomorrow after reading a headline about how the stock is going throught he roof. THey’ll lose 95% of their money shortly. Then they’ll decide that this is proof that the stock market is a rip off and keep their retirmeent in a money market fund for the next 10-20 years and lose out on decades of potential gains.
So, does it only apply to margin accounts? What about margin accounts with no active loan?
Is this relevant anymore when “margin requirements” are at 100% for these things?
At current valuations and government policy, aren’t there a large portion of economists expecting negative potential gains from the market over that time period?
" * GameStop shares that have been borrowed and sold short have declined by just about 5 million over the last week, marking an 8% dip in the short interest, according to S3.
Most of the short covering occurred on Thursday, when the stock fell for the first time in six days."
What a coincidence, covering on the one day that the one-side of supply and demand was most constrained.
Maybe. But yeah this is the potential long term problem for some.
They don’t know much about investing. Then jump in with an investment. Then get burned. THen decide the stock market is a scam, rip off, etc. THen lose out on potential gains they should be getting with a long term index fund investment.
My advice would be to never short anything. It is too risky. GME could go to $1,000 if the hedge funds are lying and have no covered and people keep buying. This is an epic short squeeze and I don’t know when the market becomes rational.
I shorted a company called Broadvision that went from $8 to $54 a share around 2013. At one point my losses were 300%. I was able to get out with a profit, but it was a stressful time.
If the company goes to $0 you double your money then your silent partner Uncle Sam takes 40% of the profits since it is considered a short term capital gain. The potential losses are infinite and the best case is a 60% profit. The risk vs. reward makes no sense.
There are so many other problems that stack the deck against shorts. No naked short selling, a federal reserve printing money to inflate asset prices, endless government stimulus checks being mailed out and gambled with, shares be called with lack of borrow, borrow fees can be 30-100% PER YEAR, and now there are reddit\social media bear raids.
The best strategy is to just never short. I won’t ever short a stock again. It is just too risky. I do appreciate some of the work short sellers do because they intimiately research these companies and do their homework. Especially when they reveal frauds.
You are going to see shorts exit the market because the risk of social media attacks is too great and unfortunately that will lead to more frauds, pump and dump schemes, social media promotions, and people overpaying for stocks causing lousy returns.
This argument that there’s somehow a public service falls flat when they transfer losses to the owners of the shares they sold short by hiding/ timing the information.
I’m not quite sure which of my links you were quoting, but i think the situation in question to worry about is if you have a margin account with a GME long position and otherwise use margin (or maybe not, YMMV on the broker margin terms), and so your broker can loan out your GME shares to some short who manages to blow up and can’t buy them back to return them.
I think in this case, both the contra broker and your broker would be on the hook to pay you back those shares, but I’m not 100% sure about that and if you don’t want to be a creditor to your broker (absent fraud by your broker ala MF Global where Corzine took client segregated assets and went off punting on bad EU debt), just holding a cash account instead of margin should be fine.
Good point. Maybe it makes sense to change the IB account setting to cash account even if there is no margin used (and a cash balance in it). I believe it also had a setting to prevent loaning out in that case? (been several years since my account was not margin… I think originally the cash account had an “opt-in” program to get a portion of loaned fees when I allowed them to loan out my shares.).
No GME shares. But if IB blew themselves up if they didn’t finish emptying their special clients’ accounts that were short Thurs and Friday (if there were some they didn’t auto-liquidate, due to them being “special”. They did NOT claim in their “letter” that they didn’t have special clients with short GME that they didn’t liquidate – only that they restricted “all clients” from placing buy orders and only accepted outside buy orders matched to sell orders.) at artificial low prices, it seems like other stocks would also apply that might be loaned out? I know a portion of my AAPL shares are always loaned out from the in-lieu payments.
Another way brokerages could blow up is if they have actual naked shorts (they loaned shares that didn’t exist), but those are supposed to be illegal…
Letting a fraud trade undisclosed is worse - bad for capital market integrity and bad since the longer it goes on, the more the bad actors cash out and stick the public at large with their stock via secondary offerings, insiders sales, etc. see the China Hustle or Wirecard for recent examples.
The shorts not only do most of the regulators’ jobs, they provide a bid higher than zero when the fraud is disclosed, supporting the price in a time when there would otherwise be very few natural buyers. And sure the US regulators are asleep and doing very little, but if you think that’s bad, in Germany the regulators sued the shorts for trying to expose the fraud and making them look bad and missing it!
